October 27, 2018
In 2019 the federal Estate Tax Exemption is 11.4 million for an individual or 22.8 million for a married couple.
So how does this effect you?
Put simply, this will only effect you if the total value of your estate exceeds the estate tax exemption amount. The vast majority of estates do not approach this level, so estate tax planning does not have to be a concern for most people. Which is nice, because now much more focus in estate planning can be on other issues, such as asset protection, income tax, and taking care of your family, over having to plan around the estate tax, which in its day was quite onerous.
What if your estate is over the estate tax exemption amount?
Then we should talk about an estate tax plan. If your estate is over the estate tax exemption amount, then your estate will be required to pay a marginal estate tax rate of 40%. This can be avoided through advanced estate planning and protection planning. Sometimes just an irrevocable life insurance trust is enough to adequately deal with estate tax concerns.
The new 2019 Estate Tax Rate will be effective for the estates of decedents who passed away after December 31, 2018.
WHAT IS THE FEDERAL ESTATE TAX?
The federal estate tax is a tax imposed by the IRS on property that is transferred from an estate after a decedent’s death. The estate tax is not imposed unless the total value of a net taxable estate exceeds the federal estate tax exemption amount. The total net taxable value of an estate is found by taking the fair market value of the decedent’s assets at the time of death (not when they were purchased) less allowable expenses and deductions.
Portability: What happens to the Federal Estate Tax if you are married?
The “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” allows the executor, trustee, or personal representative of an estate to elect to transfer any amounts of the estate tax exclusion that were not used for the decedent’s estate, to the decedent’s surviving spouse.
This is called portability. In order to use portability, the surviving spouse must file IRS form 706 for the deceased spouse’s estate and elect portability. The surviving spouse may then apply the transferred estate tax exclusion amount received from the estate of their deceased spouse, to offset any tax liability stemming from any future transfers upon death or lifetime gifts.
What the new Federal Estate Tax Exemption Means for Estate Planning?
In the past when estate tax exemption amounts were lower, even basic estate planning had to include some form of tax planning. With the increase in the Federal Estate Tax rate in 2012, and the larger increase in 2018 and subsequent years, most families are not required to pay an estate tax.
In South Carolina estate planning is still highly recommended for anyone who 1) owns real estate, 2) needs to plan for potential health issues or possible incapacity, 3) wishes to avoid probate, 4) wants to direct who their assets should go to, or 5) those with minor or disabled children or estate beneficiaries or financially irresponsible estate beneficiaries.
Does South Carolina have an Estate Tax?
Luckily, residents of South Carolina do not need to worry about a state estate tax. South Carolina does not collect an estate tax.
What About the Gift Tax?
The annual exclusion for federal gift tax purposes will stay at $15,000 in 2019. I’d bet it will stay there for a few more years. This means that you can gift $15,000 per person to as many people as you want throughout the year with no federal gift tax consequences in 2019; and if you elect to split the gifts with your spouse, that total becomes $30,000 per person. Again, South Carolina does not impose a separate gift tax.